Just follow the money

It's been a while since I've discussed the area of cash management, but it is one of the most crucial — and overlooked — areas in Canadian business.

A while back, I became a Controller at a mid-sized Canadian company that was somewhat deficient in that regard:

• deposits only went to the bank when the clerk felt like it, which consisted of a drive to the local branches of two different banks.
• everything stopped when one  manager or another (not just the President) demanded that a manual cheque be cut to pay an invoice he had sat on for over a month — and that was a regular occurrence!
• cheques would be written but not released, until a vendor called up to demand payment.
• bank reconciliations were done outside of the module provided by the accounting system then in place — and one bank account was discovered to be a mix of funds belonging to two separate companies!

There were other issues, but the above points really stood out. Needless to say, a major cleanup was in order:

• daily deposit runs were instituted, in order to minimize our interest costs.
• a US account was set up in order to tap into their ACH network.
• lockboxes were set up for customer payments to be routed into.
• we encouraged smaller orders to be settled by credit card in both CAD and USD, through Visa, MC and Amex (and we had to jump through hoops to set up Amex in USD!).
• we informed our customers of these arrangements, as well as giving them instructions for transmitting electronic funds transfers into these accounts.
• we set up online banking, in order to review our account transactions daily.
• we closed the two-company account, after dividing up the funds.
• reconciliations were caught up, and transactions were reviewed on a timely basis, so that the account recs could be done on the first working day of the following month!
• payables were settled on weekly cheque runs and sent out, using the accounting system's cheque issuing capabilities.

 All of these were easily instituted, and resulted in some significant benefits:

•  the number of cheques coming in through the mail dropped significantly and arrived less frequently, so less time was wasted in driving to the bank.
• the lockboxes allowed for funds to be credited to our accounts sooner (by 1-2 days for CAD payments, and by more than a week for USD, because the delays at Canada Post were eliminated).
• tapping into the ACH network allowed for large customers in the US to initiate direct deposits into our US account (Canadian banks, even if they put a US ABA routing number on your US cheque, are not part of this, because it is what they call a PARS number).
• getting the cheques to come off on regular runs eliminated data entry errors in the accounting system, and vendors felt more secure knowing that we were following a regular schedule.

The management there were reluctant to extend our cash management capabilities further, despite my efforts to encourage it, and that lack of imagination is one of the reasons the company is no longer in operation. What could we have done to make it better?

• expand electronic invoicing, in order to eliminate time spent in transit from suppliers and to customers.
• extending our direct deposit functions (already in place with payroll) to handle vendor payments as well, both in Canada and in the US. Other Canadian organizations, such as Ontario Power Generation, already offer this.
• transmit and receive remittance information electronically through EDI, ISO 20022 or otherwise, in order to accelerate posting to vendor and customer accounts.
• take advantage of other electronic debits available through the US ACH network.
• route wire transfers overseas through the US account, in order to take advantage of the online services available through US banks (which the Canadian banks really like to discourage, as well as overcharge).

There are some instances of companies elsewhere in the world that have set up an imaginative structure in order to really make their customer's payments be as painless as possible. One story about a photographic distributor in New Zealand, and its dealings with customers around the world, caught my eye recently, and how it was able to wean its customers off credit card payments because of the cost and risk of fraud.  Their explanation of how it's set up in order to assure trust in its transactions really does make sense in a specialized business operating on a worldwide scale, but it might not be appropriate if your operations are concentrated in one geographic area, such as North America or Europe.

Thoughts about what your office needs

It's been several years since I wrote about this, but there are several developments that have become quite significant:

• Tablets have become quite prevalent, and, together with laptops, requires the presence of wireless Internet gateways in the workplace. This is a trend that must be encouraged, and such connections must always be securely encrypted. I still believe that this should be supplemental to a secure cable network, in order to handle basic transactional data and ensure backup on the appropriate servers. There is lots of guidance as to how to implement this, and I suggest going to NIST to start investigating which configurations will work for you.
• The use of tablets, personal communications devices, digital cameras and the like have greatly increased the use of USB charging devices. It may be good practice to install these as wall outlets, in addition to surge-protective receptacles for your regular electronic equipment.
• It's been five years since schematic wiring diagrams became mandatory for commercial installations in Ontario under the Electrical Safety Code. Are yours up to date? Even if they are, is it time to revisit them, in order to arrange for the reduction of external wiring for your peripherals?
• Cloud applications are becoming quite user-friendly and powerful. Besides Google Apps, I readily recommend Box, Dropbox, Google Drive and Skydrive.
• If your office is of any great size, managed print services are a great option in order to minimize your fleet of printers and related paper usage and maintenance. There's are fair bit of competition out there, and some suppliers are more reputable than others.
• If you haven't implemented this yet, dual or triple monitors can really increase your productive output. Make sure, though, that your workspace can accommodate this without being crowded out by all the monitors. You still need to be able to make eye contact with your visitors!

"Anything that does not add value is waste."

That is one of the maxims I learned from a fellow CMA who was my boss at a subsidiary of Noma Industries Limited (a fascinating public company that no longer exists). It's amazing how many organizations take issue with that statement!

The fellow was bright, having been awarded the Board of Governors Medal by the Society of Management Accountants of Canada (now CMA Canada), for attaining the highest mark nationwide for writing his final exam before qualification. Here are some other frighteningly accurate observations of his, that have stood the test of time:

• "Once you have the answer, it becomes very easy to frame the question."
• "If it looks wrong, it probably is." (That's the converse of an old engineering phrase.)
• "If it can be written down logically on a piece of paper, it can be programmed."

I hear he's now retired. The business world has thereby lost a most interesting character.

In business, a good working knowledge of the law is essential

I have encountered many businesspeople that express the opinion that it is unnecessary to know what their legal obligations are until a dispute arises, at which time they call in the lawyers. I have always maintained that this results in a waste of time and money, which would have been better spent earlier in insisting on training and compliance in the matter in question.

The management of any business will require familiarity with the specific regulatory requirements for its industry — that goes without saying! — but there are more general areas that call for awareness as well. I will only list those that would affect daily decision making, as opposed to the more esoteric choices.

Take commercial law, and more specifically the law of contracts:

• Here in Ontario, day-to-day work will require knowledge of local provincial law. However, if you deal in Quebec, the requirements of the Civil Code (and especially its provisions relating to good faith) will definitely impact how you conduct business there.
• If you deal internationally, be aware that Canada is a party to the UN Convention on the Contracts for the International Sale of Goods, which applies to a broad range of business deals except where a contract explicitly opts out of it. On the other hand, if your contract is with a US party, and it opts out of the CISG in favour of the law of a US state, you will need to be familiar with the Uniform Commercial Code (and its provisions relating to good faith and the "battle of the forms" are among the more notorious of the differences with Ontario law).

Some other areas to consider:

• You also need to be familiar with employment and human rights law, in order to ensure that your staff are being fairly treated.
• Do not forget the impact of the various taxation laws that will impact your business — payroll taxes, GST/HST, and customs duties, for a start. If you are involved in capital investment decisions, the rates attached to the various asset classes that attract capital cost allowance under the Income Tax Act will impact any rate-of-return calculations in your appraisals
• For cross-border transactions, remember the various import/export controls and economic sanctions that Canada has in effect with respect to certain products, countries and organizations.
• If you are dealing with financial institutions, or with customers or suppliers who are in financial difficulty, you will need to know the impact of Canadian insolvency law, especially concerning the Bankruptcy and Insolvency Act  and the Companies' Creditors Arrangement Act. Also keep in mind the common-law principle of "fraud upon the bankruptcy" that voids provisions that attempt to skirt bankruptcy law, which is still alive and well as shown here and here.

If you are a director or officer of a corporation, you will need to know the various types of civil and criminal liability that your actions may attract, in addition to your obligations under the incorporating statute (such as the Canada Business Corporations Act).

If you think this is a daunting list, there is one more thing. If you are a US citizen or "green card" holder, your obligations are expanded even more under US taxation and trade law, as those are considered to apply to you worldwide. Now that is an area that will really require good advice!

Further observations on the white heat of technology

(For those of you befuddled by the title, I ask you to check this blog entry posted elsewhere.)

As a follow-up to my previous article, here are some further notes of interest:

Reverse logistics done right

Total turnaround time from dropoff at the UPS Store to return delivery to my home address was exactly four weeks. Here were the subsequent steps that occurred:

1. An e-mail was sent advising me of the work that needed to be done, contained in a generated PDF file. The attached note was in the form of an estimate, together with an acknowledgement that the warranty applied. The covering e-mail gave a reference number, a URL for viewing the status of the repair, and the notice that, if the warranty did not apply, I had 45 days to approve the estimate in order for repair work to commence.
2. Approximate two weeks later, when I logged in again, the status showed that the work was finished, and the package had been picked, giving the UPS tracking number.
3. Five days after that, checking the tracking number out revealed that the parcel was on the truck here in the GTA. It arrived that afternoon.
4. The following day, I received an original copy of the original estimate in the mail. I am aware that the border does slow mail down by up to five days, so that was not surprising, but I figure they send the hard copy in the case that the underlying e-mail account was no longer functioning. Don't laugh — I know of three people who had their Yahoo accounts compromised in the past year.

The work was done correctly, and they gave me a new battery and camera strap as well. I was impressed.

The power of the tablet

We finally broke down an acquired a tablet — in our case, a Samsung Galaxy Tab 3. It's very easy to use!

Aside from the various fun apps (in my case, linking to different radio and music services from the CBC, NPR and the BBC; for my wife, it involved setting up WeChat), there are some fascinating ones that can really help out in buiness:

1. Set up Dropbox on your home computer, and link it to the tablet's camera. The pictures you take will be immediately uploaded into the cloud and synced to your computer.I can see many collaboration opportunities in many functions in the office, shop, and outside with customers and suppliers.
2. A similar syncing scheme is also available for taking notes (typed, audio or photo) in the field. I'm using Google Keep, which is right for my needs, but there are other options out there.
3. Skype can also be set up. Android has an app for that!

I would recommend using Wi-fi connections as much as possible, as data roaming charges would be otherwise quite prohibitive (my tablet is not locked in to any of the telcos). Fortunately, most workplaces and many restaurants (think McDonalds and Starbucks) are already doing that. If you have not yet gone down that route, I'd say it would be money well spent, especially since the necessary security is quite cheap now.

Another reason not to behave badly

It never ceases to amaze me that some people think they can shirk their responsibilities when dealing with the CRA. For example, I've heard of several instances where certain taxpayers filed Notices of Objection just to hold off that agency's collection activity for months or even years, without raising legitimate issues. I hasten to add that I was not working for any of them!

That is not a good idea, especially if you have a history of risky behaviour. CRA always has the option to secure a jeopardy order from the court in order to initiate collection activity during that standstill period, if they believe you are in the process of wasting, liquidating or transferring property in order to make it unavailable to satisfy your tax liability. The following factors may provide support for the application for the order where a taxpayer has:

• acted fraudulently or has been involved in illegal activities;
• engaged in the liquidation or transfer of his or her assets so  as to put the assets out of the Minister’s reach;
• engaged in unorthodox behaviour that raises a reasonable apprehension that funds may no longer be available to satisfy the tax debt (ie, keeping large amounts of cash in one’s residence or safety deposit box, or investing in significantly risky ventures);
• engaged in tax evasion tactics, such as the failure to report income to the Canada Revenue Agency accurately;
• a significant amount of debt in comparison with his or her income; or
• assets that could potentially decline in value, deteriorate, or perish over the ordinary course of time.

There is a very good summary of the topic that can be seen here. Needless to say, I'm not in favour of any of the above tactics, not least because undertaking them really does take a significant amount of time and effort. Compliance is always cheaper and a more efficient use of your time.

Cases where things have gone right

Another year is close to an end, and another birthday has come and gone. This time, there were some interesting observations about how smoothly some technological innovations have been implemented.

Reservations

My wife decided to treat me to a birthday lunch at the CN Tower. It was originally intended to be a supper on the night before, but I wondered whether we could just walk in and get a table. On investigation (and Google does make that easy to do), we discovered that the restaurant, which is now known as 360, has set up automated reservations via Opentable.com. We were able to confirm that all tables were booked for that Saturday night, as well as for Sunday noon, but slots were still available for 11:30, 11:45, 12:15 and 12:30.

We opted for the 11:45 booking, and instantly received a confirmation with a reference number, which was also sent out by e-mail. Upon arrival, we walked straight over to the restaurant's reception desk and showed our confirmation, which allowed us to bypass the regular queue and go straight to a dedicated elevator to go up to the restaurant. I must also note that the food and the service were excellent.

Several days later, an e-mail arrived from Open Table, asking for a review and giving an option for the restaurant to reply back.

I liked how the entire process worked, and the Open Table site appears to make it easy for other restaurants to sign on. Of course, this calls for integration of their software into a restaurant's table management system, and in this instance it was very smoothly implemented.

Cross-border reverse logistics

On the other hand, I must confess that, two weeks before, I had gone down to visit family in Stratford, and took the Nikon digital camera with me. There was a fresh snowfall the night I arrived, and there were many stunning pictures as a result. The following day, I had the misfortune of dropping the camera, and the aperture and zoom controls were damaged.

The one saving grace was that this occurred just prior to the warranty's expiry. There was one slight complication, however: the camera was purchased in the US during last year's Black Friday sales in the Boston area.

During the following week, I did some investigation to see how Nikon handles their warranty claims. In summary, Nikon's policy is that repairs are handled in the country where the camera is purchased. It doesn't matter whether it is under warranty or not, and Nikon Canada is one of the most stringent enforcers of the policy.

Fortunately, their procedure for initiating and processing cross-border returns is quite well thought out, and following it eliminated any hassles with US Customs and Border Protection:

1. Register the claim with Nikon US on their website (and make sure you input the correct model and serial numbers), and print out the resulting forms package.
2. Place the claim sheet, together with a copy of the warranty (which contains the serial number) and proof of purchase, inside the box with the camera.
3. Pack that box inside a shipping box, and attach the shipping label generated in the forms package on the shipping box.
4. Take it to the nearest UPS shipping outlet. This is important, as Nikon has worked out an arrangement with UPS for handling these shipments, and the shipping label is designed to accommodate it. For shipping, you must fully describe what you are sending (ie, "Nikon digital camera, Model X, Serial #, Warranty repair"), and you have to agree to pick up the freight and inbound customs clearance to the US. That part is crucial, as Nikon will otherwise refuse to accept delivery.
5. As I discovered later, for clearance purposes Nikon supplies UPS with confirming data from the original claim you filed, in order to have it cleared as an item that will be undergoing repair. That is necessary in order to prevent it from being rejected at the border, and to have it cleared duty-free.
6. From shipment to arrival at Nikon in Los Angeles took exactly one week. This is amazing, considering I sent it out on Cyber Monday, which would have meant it would be caught in the onslaught of the other traffic happening at that time.

The complete documentation will allow the camera to return duty-free as well, and Nikon will pick up the freight on the return leg. I am currently awaiting for that to occur, and will discuss that process in a forthcoming post.